Exchange Rate Depreciations and Local Business Cycles: The Role of Bank Loan Supply

51 Pages Posted: 4 Feb 2022

See all articles by Thorsten Beck

Thorsten Beck

City University London - The Business School; European University Institute; Centre for Economic Policy Research (CEPR)

Peter Bednarek

Deutsche Bundesbank

Daniel te Kaat

University of Groningen

Natalja von Westernhagen

Deutsche Bundesbank

Date Written: 2021

Abstract

This paper uses matched bank-firm-level data and the 2014 depreciation of the euro to show that exchange rate depreciations lead to increased bank loan supply of large banks with significant net foreign asset exposure. This increase in lending can be explained by a shift in credit towards both export-intensive firms and small banks without foreign asset exposure that have a higher share of exporting firms in their credit portfolio. We also find that German regions where these reallocation effects are stronger experience higher output growth. In economic terms, we show that such regions grow by 1.2 percentage points more than less exposed regions, cumulatively, in the two years after the depreciation relative to the two pre-depreciation years.

Keywords: Exchange Rates, Bank Lending, Interbank Markets, Real Effects, Regional Business Cycles, Germany

JEL Classification: E44, E52, G21, O40

Suggested Citation

Beck, Thorsten and Bednarek, Peter and te Kaat, Daniel and von Westernhagen, Natalja, Exchange Rate Depreciations and Local Business Cycles: The Role of Bank Loan Supply (2021). Deutsche Bundesbank Discussion Paper No. 52/2021, Available at SSRN: https://ssrn.com/abstract=4025683 or http://dx.doi.org/10.2139/ssrn.4025683

Thorsten Beck

City University London - The Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

European University Institute

Villa Schifanoia
133 via Bocaccio
Firenze (Florence), Tuscany 50014
Italy

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Peter Bednarek

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany
004969 9566-8972 (Phone)

HOME PAGE: http://www.bundesbank.de

Daniel Te Kaat (Contact Author)

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

Natalja Von Westernhagen

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
8
Abstract Views
47
PlumX Metrics